A loophole in state and county laws could make it tough for Division of Real Estate director Erin Toll to take action against people she has been investigating for alleged abuses to the state’s conservation easement program.

At issue is the number and size of parcels into which large ranches have been divided. Under the current system, the Division of Real Estate only has jurisdiction over subdivisions that create 20 or more parcels. At the same time, counties have no jurisdiction over parcels that are larger than 35 acres, leaving a segment of properties that fall outside anyone’s authority.

Toll said she plans to suggest changes to legislation expected to be introduced by state House Majority Leader Alice Madden, D-Boulder, and Sen. Jim Isgar, D-Hesperus, that will modify subdivision laws to close the loophole as it applies to conservation easements.

Gov. Bill Ritter last week said it’s possible the attorney general’s and district attorney’s offices will get involved in the investigation.

“We are in discussions with Erin Toll’s division and the Department of Revenue for possible referrals,” said Nate Strauch, spokesman for the attorney general’s office. “We don’t have any cases in house yet.”

The conservation-easement program allows landowners to get tax deductions and earn tax credits they can sell for cash in exchange for restricting development on their land.

Abuse of the program can occur when landowners get excessively high appraisals for property they put in easements, allowing them to take higher tax deductions and obtain more tax credits than they otherwise would get.

Among the red flags is when land is divided into multiple ownerships before it is put into conservation easements, allowing multiple parties to get the tax benefits.

If the land is in fragmented ownership, it won’t be managed consistently, said Ariel Steele of Tax Credit Connection Inc., a Longmont firm that advises the buyers and sellers of tax credits.

“It’s also potential evidence that you weren’t planning on making a true donation,” Steele said. “If you break it into multiple ownerships, you could be showing the reason that it’s done is for tax purposes only.”

Some instances make sense

There are some instances where phasing conservation-easement donations makes sense, experts say. A rancher donating a 1,000-acre easement, for example, may think it’s unfair to receive the same tax benefits as one donating a 300-acre easement and may choose to phase it.

Toll reported at a conference for the Colorado Coalition of Land Trusts last week that preliminary results from an investigation launched in October show highly suspect transactions.

In one instance, a 640-acre ranch was on the market for $1.2 million. Using limited-liability companies, the ranch was transferred and subdivided into 16 40-acre parcels. Multiple owners of one of the limited-liability companies each purchased at least one 40-acre parcel through the company.

A conservation easement was then placed on each 40-acre parcel. An appraiser valued each parcel at $650,000, a value that allows for the maximum state tax credit of $375,000.

“At the end of the day, property that was on the market for $1.2 million all of a sudden had easements on it valued at $10.4 million for a total property value of around $15.4 million,” Toll said.

The potential state tax credit is up to $5.2 million for one ranch, she said.

“Absent some fact that we missed, such as gold was discovered on the property, I’d say this deal is more than a little bit shady,” said Toll, who declined to specify where the ranch in question is located.

Overall, the investigation is showing suspect easements valued at $76.5 million, which could lead to illegitimate state tax credits of up to $38.2 million, Toll said. The Division of Real Estate plans to share its findings with the appropriate law enforcement agencies.

The hitch: no jurisdiction

Several of the questionable conservation-easement valuations involve subdivision analyses to determine a value. The hitch is that the Division of Real Estate has no jurisdiction to enforce subdivision requirements on property that has been subdivided into fewer than 20 parcels. Counties have no jurisdiction over parcels larger than 35 acres.

The investigation has found that conservation easements that used the subdivision analysis divided the property into 35- or 40-acre parcels with fewer than 20 lots.

“This is outrageous to me,” Toll said. “The next step is to share it with the appropriate law enforcement.”

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